The euro fell for a fifth week versus the dollar in its longest losing streak in almost two years on concern Europe’s debt crisis is worsening and as data showed the U.S. labor market is strengthening.

The 17-nation currency slid to a record low against the Australian dollar and traded at the weakest level in more than 11 years versus the yen as demand at bond auctions spurred concern European nations will struggle to sell debt. The pound rose to a 15-month high versus the euro before the European Central Bank meets on Jan. 12. Hungary’s forint tumbled and Fitch Ratings downgraded the country to junk.

“One of the factors driving the market right now is a general lack of demand for European assets,” said Shahab Jalinoos, a senior currency strategist in Stamford, Connecticut, at UBS AG. “There are enough sources of new bad news to keep the market adapting; all the bad news is not priced in yet.”

It was the worst week for Europe’s common currency in four months. The euro lost 1.3 percent against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes, the most since it dropped 1.9 percent in the five days ended Sept. 2.
Bets Against Euro

Futures traders increased their bets (ECLRG) that the euro will decline against the dollar to a record high. The difference between wagers the shared currency would fall versus those that it would rise -- so-called net shorts -- surged to 138,909 in the week ended Jan. 3, according to the Commodity Futures Trading Commission.

The euro dropped as France sold 4.02 billion euros ($5.11 billion) of benchmark 10-year notes Jan. 5 at an average yield of 3.29 percent, compared with 3.18 percent at a sale on Dec. 1. The bid-to-cover ratio, the number of bids received for each unit of debt sold, fell to 1.64, from 3.05. Demand at a German auction of 10-year bonds a day earlier was lower than the five- year average. France, Greece, Germany, Italy and Spain are all scheduled to sell debt next week.

Australia’s dollar rallied to a record 80.51 euro cents yesterday. It gained for eight consecutive days versus the shared currency, the longest winning streak since December 2010. Against the greenback, the Aussie advanced 0.2 percent on the week to $1.0228.

The trend of relentless shorting of the Euro currency in the form of non-commercial spec contracts, and as reported by the Commitment of Traders, continues for one more week. As of January 3, EUR shorts rose by another 9%, hitting an unprecedented 138,909 net contracts short - a fresh all time record. What is curious that unlike previously, when an increase in EUR bearishness implicitly meant a increase in USD bullishness, this time that is no longer the case as net spec USD contracts actually declined, and are trading at relatively subdued levels. Overall, this means that FX specs are not playing relative currencies off each other, but are piling into a global European short.

The position of "large specs" (hedge funds and big traders) is 138,909 short. One needs to add another 27,160 short contracts by "small specs" (small traders), to arrive at a combined net speculative position of 166,069 contracts short.

Since in futures trading everything nets to zero, commercial traders (JP Morgan, etc) are net long a record 166,069.

Big Specs vs. Currency Movements

The above chart from ZeroHedge.

I immediately recognized the shape of the red line in the above chart. Here it is in another place.

$XEU - Euro vs US Dollar.

$XJY - Yen vs US Dollar

Not Timing Devices

Speculative futures positions are not timing devices. Note the bounce in October did not hold as short-covering in Euro contracts by the speculators did not approach the zero-line before reversing.

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